We examine how fund flows that are correlated with subsequent fund returns can impact the performance of open-end mutual fund through a dilution effect. Since these flows tend to put cash into a fund just prior to positive returns on the fund?s risky assets, the cash dilutes the fund?s return....

Capacity constraints limit the profits of some investment strategies, while other strategies are more scalable. We develop a dollar-weighted return measure that parses the factor timing by investors and a strategy's capacity constraints. We find that actively managed funds exhibit significant...

Open-end mutual funds usually rely on the closing prices of the assets they hold to compute their net asset value (NAV), a price at which funds stand ready to buy and sell their own shares. Since the underlying assets' closing prices might be hours or even days old, the fund's NAV can be stale....

A common risk that plan sponsors face is incorrectly terminating an effective strategy. Even funds that outperform over the long term can experience subperiods of short-term underperformance. This paper uses a sample of 525 institutional large-cap equity strategies to analyze the likelihood of...

We examine how the motivation behind the launch of a mutual fund is associated with the fund's subsequent performance. We find that mutual funds have incentives to cater to investor sentiment to attract assets under management by launching trendy mutual funds. The incentives to launch trendy...

This paper introduces a model to measure the dilution impact on an open-end fund due to market timing trades. When a timer buys shares of a fund just prior to positive returns, the extra cash in the fund dilutes the fund's return. While this impact can be directly measured on the day after a...

This paper decomposes portfolio returns into the underlying sources arising from the constituent stocks' growth rates, as well as their variances and covariances. We employ this method to show that the difference between large and small stock portfolio returns is driven by a portfolio “excess...

We investigate the optimal portfolio mix of bonds and stocks across investment horizons. Sharpe ratios are computed using simulated returns for portfolios ranging from 100% bonds to 100% stocks where the portfolio mix is varied in increments of five percentage points. Holding periods from one to...

In this paper, we re-examine the findings of Strebulaev and Yang (2014) related to zero leverage firms when applied to bottom quintile of small firms. For this paper, we eliminate the 10 million in Total Assets minimum to be included in the Strebulaev and Yang (2014) sample. This change would...